Stock Drops as WebMD Disappoints

The stock price of WebMD Health Corp. fell 7.7 percent in heavy trading on Nov. 3 after the company reported poorer than expected third quarter financial results and reduced financial expectations for the fourth quarter and all of 2011.

Net income for the third quarter rose less than one-half of one percent to $14.2 million, as revenue of $135.1 was essentially flat.

The company previously in July had lowered expectations for the rest of the year and the new guidance for financial performance moves those numbers further down. On May 5, WebMD gave guidance of $610 million to $640 million in revenue for 2011, lowered that to $580 million to $600 million in July and now expects $555 million to $565 million. While $555 million in annual revenue would be nearly a 4 percent increase over 2010, WebMD investors are used to far more robust performance.

Adjusted earnings before interest, taxes, non-cash and other items for the year were pegged at $215 million to $230 million in May, $200 million to $215 million in July and $180 million to $187 million now, compared with $173.6 million in 2010.

Factors contributing to the newly lowered projections include a more cautious business outlook by many large customers, and a less than expected contribution of third quarter sales to fourth quarter revenue "and significantly less than historical experience," as the delivery of services sold in the third quarter is weighted more toward 2012 than expected.

Further, WebMD historically benefits from more media buying in the fourth quarter when biopharmaceutical and consumer products firms commit unspent funds as their budget years close. This year, the pharmaceuticals aren't ramping up at year-end, and their spending for digital marketing is stuck at 5 percent, according to the company.